Author: Sundeep Gupta, Baker Tilly ASA India , Manoj Sharma, Shivpriya & Pushpa MB, ASA
Section 172 of the Internal Revenue Code (IRC) plays a vital role for businesses in managing Net Operating Losses (NOLs), offering both financial relief and tax benefits. NOL occurs when the deductible expenses of business exceed its taxable income, resulting into a loss for the year. This loss is permitted to carry forward and enables businesses to offset taxable income in future years with these losses, which is crucial for maintaining financial health and liquidity.
Eligible taxpayers for NOL deductions include Individuals, C Corporations, Non-life insurance Companies, Estates and Trusts.
However, Partnerships and S Corporations cannot claim NOLs at the entity level: instead, the losses pass through to their partners and shareholders respectively.
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